EURAgainst the dollar on Wednesday, the exchange rate fell below par for the first time in nearly 20 years, as the Federal Reserve (Fed) hawkish stance andEURfears of rising recession risk in the region.
EURThe break below parity was mainly influenced by US inflation data.
The European single currency has had a strong start to the year amid the pace of post-pandemic economic recovery.But Russia’s invasion of Ukraine, soaring gas prices in Europe and fears that Russia might cut supplies further have added to recession expectations and hurtEUR。
Meanwhile, the safe-haven U.S. dollar has benefited from heightened global uncertainty and the Fed’s aggressive monetary policy stance.
Wednesday at 8:45 a.m. ET,EURIt fell as much as 0.4% to a low of $0.9998, its lowest level since December 2002. It was last down 0.1% on the day at $1.005 and has fallen more than 10% this year.
“Gas rationing, stagflation, recession expectations are all bearish,” said Stuart Cole, chief macro economist at Equiti Capital in London.EURgood reason. “
Those factors would make it harder for the European Central Bank (ECB) to raise interest rates, further widening the spread with the United States, he added.
Since its inception in 1999, the European single currency has barely traded below dollar parity. In fact, the last time this level was seen was between 1999 and 2002; it fell to an all-time low of $0.82 in October 2000.
Over the past 20 years,EURis the second most popular currency in global foreign exchange reserves,EURDaily trading volume once morest the US dollar was the highest among the world’s market currencies at $6.6 trillion per day.
EURThe decline is a headache for ECB. Allowing the currency to fall will only fuel the record high inflation that the ECB is trying to control; but trying to prop it up with higher interest rates might exacerbate recession risks.
So far, the ECB has played down the issue, arguing that it has no exchange rate target, even if the currency does matter. Calculated on a trade-weighted basis relative to the currency of the trading partner,EURIt is down just 3.6% this year.
